PIERRE, S.D. (AP) - PIERRE, S.D. (AP) - Derek Fernholz expects his young South Dakota craft brewery to push past 5,000 barrels for the first time this year, a marker of a business that is hot - and could wind up in trouble because of it.
Fernson Brewing Company’s success would exceed a state production limit, jeopardizing its licenses to carry other beverages like cider and wine, offer beer for customers to take away and keep running a new taproom location in downtown Sioux Falls.
“We’re very fortunate that we’ve seen the growth that we have to get to this point,” Fernholz said. “I think the biggest change would be essentially having to go back to the drawing board and figure out how we continue to do business having to change a large part of how we do it today.”
Craft brewers would be able to produce up to 30,000 barrels per year while holding other licenses and sell their suds directly to bars under an overhaul Gov. Dennis Daugaard is pursuing to make South Dakota microbrewing more competitive with surrounding states.
Daugaard recently had to ask what an IPA is and doesn’t have a favorite home state microbrew, but the Republican governor says state regulations are stifling the industry in South Dakota. Daugaard said he had learned a microbrewery was among a Montana city’s top tourist attractions on Yelp.
“It’s not just a business that makes beer,” he said. “It occurred to me, can’t we have some of that in South Dakota?”
Fernholz said the increase would be a “weight lifted off our shoulders.”
“We can just continue to get a good foothold, and to build upon what we’ve built here in Sioux Falls and in South Dakota, and to continue growing,” he said of the company best known for its Lion’s Paw Lager.
The governor’s chief of staff, Tony Venhuizen, said in an email that microbreweries in South Dakota expect to exceed 5,000 barrels of production in the near future and will struggle to remain viable without the increase. Republican Rep. Arch Beal, who runs a distributing business, said he’s open to change, but would prefer an increase to 12,000 barrels, rather than 30,000.
Chad Petit, co-founder of Hydra Beer Company, said visitors from every state have put pins in a map hanging at the Sioux Falls brewery, which produces beers with names like Death Breath, Pale Horse and Unholy. Petit said he’s happy to see progress to give South Dakota a “competitive chance” with surrounding states.
“If we grow our brewery and add on, we will be up against that,” said Petit, who anticipates Hydra will produce 1,000 barrels this year. “I’m not for big beer, but why are you choking out a free market?”
The governor’s legislation would also allow the microbrewers to sell their products directly to businesses like bars and stores. The change is important for new, growing breweries that are operating at a scale that doesn’t lend itself well to distribution through a wholesaler, Venhuizen said.
Brian Trimble, owner of Bill of Rights Brewery in Pierre, said he would likely distribute his own beer around the city if he had the option. The move would help the new brewery grow, said Trimble, who estimated he produced at least 120 barrels last year.
“The more money I save on that end, the more money I can invest into more kegs, and getting more out there, brewing more often and all that kind of stuff,” said Trimble, whose top sellers are a jalapeno amber ale and a honey basil ale.
Bob Riter, a lobbyist for the South Dakota Beer Distributors Association, said he’s going to meet with the group’s members to discuss the proposals. Riter said the organization is willing to work to be “reasonable in our approach to this.”
In neighboring North Dakota, Todd Sattler of Laughing Sun Brewing Company successfully pushed a law change in 2013 that allows craft brewers to self-distribute their beer. The brewery distributes in Bismarck, Fargo and Minot, and Sattler is planning an expansion - with projected production of up to 3,000 barrels in 2019.
“It allowed us to be confident in moving forward with distribution being a larger part of our business because we’ve done it ourselves before,” he said.
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